Tag Archives: European Council

Europe is dead. Long live Europe. The demise of the political and economic union, as we knew it, became evident at the recent meeting of European Union leaders in Brussels. What is less apparent is which Europe will replace it. A rapidly changing world has forced the once-untroubled Europeans to think again about where their continent is heading and how it will get there. The decisions taken over the next few weeks and months will determine whether a brave new world lies ahead or whether we will be left clutching the remnants of a flawed past.

The February 4 summit confirmed that the European project, built on the expectations of decent salaries, respectable retirement ages and an abundance of jobs, mostly in the service sector, has reached its expiry debt. The “social Europe” envisioned by, among others, former European Commission President Jacques Delors, where workers’ rights were protected and adequate public services were available to all, has fallen victim to circumstances. The sovereign debt crisis has been a major catalyst in this, but the Union faces much wider challenges than just how to deal with debt and deficit problems.

Although one EU government after another has been cutting its spending and trimming the fat from its public sector over the past couple of years, February 4 proved a watershed in the process of sacrificing the old Europe at the altar of the new economic reality. French President Nicolas Sarkozy and German Chancellor Angela Merkel unveiled their “pact of competitiveness” as a strategy to help the eurozone out of the crisis and to harmonize economic and social policies between the 17 members. The six-point package includes proposals to increase each country’s retirement age to reflect its demography, abolishing automatic inflation-linked wage increases and setting an across-the-board minimum corporate tax rate.

The proposals have divided Europe, not just because Merkel and Sarkozy continue to forego consensus in favor of maintaining an agenda-setting momentum, but because some of their suggestions go against the European grain. “I can’t really detect a reason why abolishing the indexation of wages should improve the competitiveness of my country,” said Luxembourg Prime Minister and head of the Eurogroup, Jean-Claude Juncker. “This is not a competitiveness pact, it’s a perverse pact toward lower living standards, greater inequalities and more precarious employment conditions,” said John Monks, head of the European Trade Union Confederation.

The six-point plan is cast in the mold of the EU’s two dominant economies: the French and German — particularly the latter. But those who oppose the competitiveness pact argue that in a Europe that is not homogeneous, creating more economies in the image of Germany’s is unfeasible and undesirable. “The German model, which relies on a permanent trade surplus is neither sustainable, nor transferable,” wrote the left-leaning German daily Berliner Zeitung. “It works as a model for a selfish nation that floods the neighborhood with its goods and services and exports unemployment at the expense of others.”

“What the chancellor is proposing is a pact of insanity,” concludes the newspaper. “Europe doesn’t need more Germany, rather it needs more cooperation and community.”

However, there are many within Europe who think that Merkel and Sarkozy are on the right track and that although their proposals may reflect a grim reality, it’s reality nonetheless. “The competitiveness pact is a step in the right direction because it means that we are not discussing just narrow economic governance — having more rules — but the broader approach about what competitiveness is as well, and how we will ensure that what has happened over the last two years does not happen again,” Karel Lannoo, CEO of the Center for European Policy Studies told Kathimerini English Edition.

“It is much more important to have disagreement on issues of competitiveness, such as real unit labor costs and how to run public finances, than to have even more rules in the Growth and Stability Pact or balancing the budget. It’s much better to have agreement on broader principles and have them effectively applied.”

Merkel and Sarkozy, some believe, are trying to drag an aging Europe toward economic pragmatism; the lofty ambitions that accompanied the euro for the past decade and the dreams of social security and stability that have formed the cornerstone of the EU will have to be tempered, if not completely abandoned. The debt crisis triggered by Greece’s spectacular unravelling lit the blue touch paper for this dramatic reconceptualization but there is more to it than that. China is the dragon in the room that Europeans are only starting to talk about it now.

China has become a key trading partner for the EU and, in cases such as its purchase of Portuguese, Spanish and Greek bonds, is actively trying to help Europe through this crisis because it values having a reliable trading partner and a counterbalance to the influence of the USA. However, China has also become a competitor because of its meteoric rise in the production sector. The market dominance that has come with it has reminded Europe, that its service-based economy is not strong or versatile enough to withstand the force of the crisis, that it no longer makes things, that its industries are in decline and that it has little capacity for creating new jobs at a time when they are needed most.

Last December, China said that it had created 57 million manufacturing jobs between 2006 and 2010. Between 2008 and 2010, the EU shed almost 5 million jobs in industry while seeing its unemployment rate grow to an average of more than 10 percent and an increasing number of people (40 percent of the EU’s young) working in temporary jobs.

“A little while ago we declared that we were in the post-industrial age and this had a huge impact on such things as the structure of education: we didn’t have any engineers — it was more in vogue to become a psychologist than an engineer,” former Regional Policy Commissioner and current MEP Danuta Hubner told Kathimerini English Edition. “There were a lot of factors that made industry much less important in our economy. And then there is China, which is a completely new factor, which is competing with us mostly in industry and agriculture but not yet in the services. So, now we have to think about creating jobs in the real economy.”

Merkel and Sarkozy’s “competitiveness pact” suggests what underlying conditions, such as low debt and a more flexible and cheaper workforce, might be needed for growth to return to Europe but it still doesn’t propose how jobs will be created. This is an issue that the EU is only beginning to grapple with and the proposals on the table still seem nebulous. It is not clear if the focus has to be on better education, more research or gearing up industrial production. Will the new jobs be in laboratories, on factory floors or in design studios? If the plan is to improve the skills and knowledge of the next generation to give Europe the edge over China, India, Brazil and any other competitors, will Europe be able to survive a lean period in the intervening years? These are quandaries that the EU, collectively and individually, has yet to really address.

At a central level, the European Commission unveiled last October its plans in a communication titled “An industrial policy for the globalization era,” which called for initiatives to create more favorable conditions for industry, including simplifying legislation and offering financial incentives. However, this was somewhat contradicted by EU Research Commissioner Maire Geoghegan-Quinn, who at the beginning of this month said that Europe has to focus more on innovation, which would involve reforming education and investing more in research and development. Last year, the EU adopted the 2020 strategy as a successor to the Lisbon Agenda, which had sought to make Europe a “knowledge-based” economy. The 2020 strategy aims to set targets for reducing the number of early school leavers, increasing the number of people in employment and boosting investment in research and development. The chances of these targets being met in Greece, Ireland or debt-burdened Portugal, for instance, seem slim. Beyond this, the strategies and goals of the individual states have to be taken into account as well. Europe, it seems, is lost in the fog created by the debt crisis, unsure of which way to turn.

“There are still people in important European institutions who believe that just by training people you can create jobs, which I don’t think is really true,” said Hubner. “You still need investment, not just any investment; you need investment that is not just allowing us to compensate for what we lost in the crisis but to have a new type of production that will let us compete with everyone else.

“That’s why we want to focus on the knowledge that comes from education and innovation. We also have to look for jobs in combating climate change. You have to use the European budget to help with this because it has a strong catalytic function, and you must have national budgets working. We have to push for the European Investment Bank to have a greater role. But it is still not enough; we cannot create jobs without private capital,” said Hubner.

The Europe of the future, it seems, will have to turn back the clock by rebuilding a production base, albeit one that will rely on small and medium-sized enterprises pumping out innovative ideas and products rather than large factories pumping out carbon emissions.

“We have to invest in things that generate competitiveness,” said Hubner. “We don’t want just any growth but very concrete growth because we are losing jobs to India and China overnight.”

Although China is reportedly losing some labor-intensive manufacturing jobs to countries like Bangladesh, Vietnam and Cambodia because they offer even lower wages and more unskilled labor, it is still an immensely cheaper place to make things than Europe. Compensation rates for workers in China are estimated to be no more than 5 percent of those in Europe. So, even if European wages are suppressed, as Sarkozy and Merkel’s pact proposes, competing with China or India on labor costs is out of the question.

“I don’t believe that you can change Europe’s development model to compete with China,” said Hubner. “We have to invest in productivity.”

This argument is the starting point for those within the EU who say the answer to the Union’s problems is not becoming more like China, but becoming more like Europe. In other words, it must not stake its future on an export-driven economy supported by cheap, precarious labor but find a better way to harness the potential of a highly developed group of states with a combined population of more than 500 million people.

“At the moment, Europe is one of the most competitive regions in the world,” Jurgen Klute, an MEP for Germany’s leftist Die Linke party and a member of the European Parliament’s economic and monetary affairs committee told Kathimerini English Edition. “This talk [of competitiveness] is only designed to build up psychological pressure on people. It’s not reality.

“We have to look to be competitive but that is only one aspect. We should not focus just on the Chinese, we have to be focused on our own market and development. We have to organize a production sector, a service sector and a sector for delivering goods for our own population. That should be the first goal of every politician in Europe.”

The concern of many in Brussels, and other European capitals, is that Merkel and Sarkozy are pushing an agenda, which is to be reassessed at the next EU leaders’ summit on March 24 and 25, that suits them and their economies but not necessarily the rest of Europe. Their insistence on concluding their business behind closed doors and then presenting other European leaders with a fait accompli is heightening fears that rather than bringing the EU together so it can meet its new challenges with a united front, the Franco-German allies could cause irreparable differences.

“There was no democratic control over the discussion that happened,” said Klute. “Merkel and Sarkozy are trying to change the culture and procedures of the EU. In the past it was clear that you have to find compromises and balances.

“The Council [of EU leaders] is focused only on the single state, not the relationship between states. They ignore that there is a relationship between the deficit of some countries and the surplus of other countries. If there is to be solidarity, then the stronger states have to reduce their speed a little bit.”

The EU is not just facing an economic dilemma, it has an existential question to answer about how its decisions are taken and where these decisions lead, Klute suggests.

“There has been a change in the understanding of how the EU should develop, in the understanding of solidarity and of the democratic process. It’s a very big change in the direction of the EU.”

The issue of competitiveness, as set out in Merkel and Sarkozy’s proposals, therefore seems to be a misleading one. Few people have better first-hand experience of European affairs than Pierre Defraigne, the executive director of the Madariaga-College of Europe Foundation, who served as a European civil servant for 25 years. He is adamant that tweaking wages and retirement ages will not be enough to save Europe. He believes there needs to be a concerted effort to transform Europe into a much tighter-knit community with a specific economic agenda.

“The first thing I would do is to delete the word ‘competitiveness’ from the vocabulary of politicians and economists,” he told Kathimerini English Edition during a seminar organized by the European Journalism Center. “We have to climb up the technology ladder. This is a matter of public policy and small firms — start-ups and so on — and of large firms, of champions. We don’t have the right system and we are still just an economic space, a market; we are not really an integrated politico-economic system.”

Defraigne suggests that Europe can have an industrial future but that it will need to find the appropriate mix of labor market and social policies to achieve it. To reach this point though, Europe will need a level of coordination and harmonization that it has only flirted with in previous years. It seems that the EU’s political and economic viability is reliant on the bloc’s politicians and opinion-makers being able to redefine what this Union is about.

“For me, the key issue is to give Europe a sense of direction, a sense of purpose,” said Defraigne. “The half-century of effort we have carried out successfully will be legitimized in history if we move to closer political union.”

With just over a month until its leaders meet again for a crucial summit in Brussels, the EU must begin redefining itself. Visions must be reconjured, goals reset and strategies redrawn. In the meantime, the words of Delors, one of the architects of the Europe that is now crumbling like a desiccated sand castle will ring poignantly through the corridors of power. “The problem with a purely collective system,” said the Frenchman, “is not only that it requires economic growth, and the right sort of demographic trends, but that it prevents people thinking about their futures in a responsible way.” A lack of growth and the unfavorable demographic trends have forced Europe to emerge from its cozy collectivity and think about its future. Now we wait to see which Europe will emerge from this process.

Tony Blair must be getting used to rejection by now. He left office in 2007 unloved and unwanted after 10 years as British prime minister. His attempt to win back some respectability as an international statesman by becoming a Middle East envoy has been a damp squib. And now his voyage to become the Europe’s first president appears to have foundered on the EU’s perennial rock of uncertainty.

In hushed tones and behind closed doors, European leaders last week seemed to reject the idea of Blair being appointed president of the European Council, a position created by the ratification of the Lisbon Treaty by all 27 EU member states.

Blair has some characteristics that would make him a suitable candidate for the role (charisma, valuable political experience, good communication skills, the ability to lead and diplomatic presence) but for many these are outweighed by the baggage he would bring with him (the Iraq War, his close ties to George W. Bush, his unpopularity in his own country, a pending investigation into whether he lied to his people and parliament and a fraught relationship with the EU in the past).

The fallout from the Iraq War is the biggest elephant in the room blocking Blair’s path to the presidency. The decision to hitch his wagon to George W. Bush’s lone star is something Europeans cannot overlook easily. But given the chance, Blair would probably explain that as the British prime minister, he had to make a decision – a very wrong one as it turned out – about whether to take part in a war. Had he been the prime minister of Belgium or Luxembourg, for example, perhaps his toughest foreign policy choice would have been what color bunting to get out when dignitaries visit from abroad.

Blair might even argue that having been through such a maelstrom and suffered the political consequences of his choices, he has the ideal experience to now be a unifying rather than a divisive figure. But even this does not dispel the dark cloud of mendacity that hangs over him. The Chilcot inquiry into Britain’s participation in the Iraq War will hopefully establish beyond doubt what Blair knew and what he told MPs and the public before committing troops to that conflict. The fact he’s due to face such an investigation appears to undermine his bid to become EU president. To risk having the first person in such a high-profile role publicly exposed as a liar would damage the Union. Of course, there would be more than a hint of hypocrisy in the air if he is rejected on this basis alone: Few of the 27 leaders who decide who fills the role are paragons of virtue themselves – any group that has Silvio Berlusconi as one of its most prominent decision-makers can hardly claim the moral high ground.

Perhaps that’s why some of them decided to suddenly create new criteria for any presidential candidate: his country would have to be a member of the eurozone and part of the Schengen Agreement – Britain is neither. If the EU’s aim is to appoint the best person for the job, then this shifting of the goalposts is preposterous. Theoretically, the EU president should be someone that’s transnational, not national, federal, not feudal. If he or she subscribes to the European project, then their homeland’s policy should be irrelevant.

Of course, Blair’s critics would argue that he’s always been at loggerheads with the Union, typified by his stance in 2003 in the buildup to the Iraq War, which was widely interpreted as an effort to split the bloc. However, Blair has engaged with the EU in more constructive ways as well. One of his first acts after being voted into power in 1997 was to abolish Britain’s opt-out of the Maastricht Treaty’s Social Protocol. He was also one of the proponents in 1998 of giving the EU a role in defense policy and was a champion of the bloc’s enlargement. He was the first British prime minister to put the UK’s budget rebate up for discussion in 2005, when he urged member states to reform the Common Agricultural Policy and cut the extensive waste and laziness that it leads to, as we are well aware of in Greece.

In June of that year, Blair stood before the members of the European Parliament and set out a vision for a less bureaucratic, more liberal and modern Europe. “The people of Europe are speaking to us,” he said of citizens’ waning interest in the EU. “They are posing the questions. They want our leadership. It is time we gave it to them.” More than four years on, that leadership is still absent and, as the turnout in June’s European Parliament elections indicated, interest in the EU is flimsy. These are issues that, theoretically, a European president could address.

The role has been created so that someone can preside over the European Council – the regular summits between the 27 heads of government – and coordinate its work. According to the Lisbon Treaty, the president should also “ensure the external representation of the Union on issues concerning its common foreign and security policy.”

Yet, what we have seen over the last couple of weeks is a climb down from this position. The message from Brussels last week was that it would be preferable for the president to come from one of the smaller member states, that he or she should be able to strengthen Europe from within, not necessarily give it a presence on the world stage, and be willing to play second fiddle to European Commission President Jose Manuel Barroso and the 27 leaders.

“There is an argument that a political star as a president of the EU would lead to trouble with the president of the Commission and other leaders,” Robert Goebbels, the Luxembourg MEP who has launched a petition to stop Blair from being considered for the job, told Athens Plus.

It would be one of the EU’s more quixotic moments should it create an opening for a figurehead who could use diplomatic and communication skills to promote the Union to an increasingly apathetic public and give it a greater presence on the global stage only to then shackle him or her for fear of upsetting internal balances.

As the Dutch daily De Volkskrant put it in a recent headline: “Europe chooses: chief or messenger boy.” Given some of the names that have been mentioned as alternatives to Blair – Luxembourg Prime Minister Jean-Claude Juncker, Dutch Prime Minister Jan Peter Balkenende, former Finnish Prime Minister Paavo Tapio Lipponen, former Austrian Chancellor Wolfgang Schussel, former Belgian Prime Minister Guy Verhofstadt and former Latvian President Vaira Vike-Freiberga – it seems the EU has decided there are too many indians to have a chief.

Presumably some of these politicians, if not all, are who The Economist had in mind when it referred to “the usual Europygmies.” Maybe, it’s a harsh assessment of men and women who are capable politicians in their domains, although hardly singular figures, but it underlines the challenge the EU now faces in trying to select someone to fulfill a role whose purpose remains unclear and undefined.

At least something is much clearer now: rejecting Blair was the easy part, too easy perhaps.

This commentary was written by Nick Malkoutzis and first appeared in Athens Plus on November 6, 2009.